Costco Has A Huge Advantage Over Wal-Mart And Target

The company's strategy is helping it outperform industry heavyweights like Wal-Mart and Target.

Costco's membership fees give it a huge advantage over competitors, Brian Yarbrough, consumer analyst at Edward Jones, told Business Insider.

The company charges a $55 annual fee for members. For $110, customers can join the platinum program.

Costco benefits from the membership fees in two ways, Yarbrough said.

First, the company gets the cash up-front. About 75% of Costco's operating income is from the member charge.

But the biggest payoff for Costco is how people feel once they're members.

"Once people buy the membership, they feel like they have to get their money's worth," Yarbrough said. "That keeps customers coming back, and is something that makes them stand out from other retailers."

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Dollar stores, drug stores, and warehouse clubs "are taking share from broad-assortment retailers," analysts at Goldman Sachs wrote earlier this year.

Costco's strategy of very low mark-ups and quality over quantity appeals to consumers today, the analysts wrote.

Yarbrough also notes that Costco's gas stations have been a good source for cash.